Spanish Repossessed Property Prices Tumble 65% in Credit Crunch

Spain’s property market is hampered by the country falling into its second recession in three years and struggling with Europe’s highest unemployment rate of 25 percent. Photographer: Angel Navarrete/Bloomberg

Dec. 12 (Bloomberg) -- Prices of repossessed Spanish homes
offloaded by lenders this year tumbled 65 percent as a million
new properties remain unsold and buyers find it more difficult
to get mortgages, according to Fitch Ratings.

The price decline is relative to the value of the property
when the loans were made and is more than double the drop in
real estate values recorded in government data. That compares
with a 45 percent slump in Portuguese repossessed house values.

Spain’s property market is hampered by the country falling
into its second recession in three years and struggling with
Europe’s highest unemployment rate of 25 percent. Fitch
published its latest study five years after a decade-long real
estate bubble burst and just as Spain sets up its so-called bad
bank to purge toxic assets from the books of troubled lenders.

“Fitch believes that the factors weighing on the Spanish
residential property market will continue to deteriorate,”
Madrid-based analysts Carlos Massip and Juan David Garcia wrote
in the report. “The gap between original valuation and the sale
price is a reflection of a distressed mortgage market,
characterized by high borrower indebtedness, constrained
affordability” and “falling property prices,” they wrote.

The drop in this year’s sale prices of repossessed Spanish
properties is the sharpest since the financial crisis began and
compares with an average 50 percent decline since 2007, the
analysts wrote.

Repossessed property prices are lower than official real
estate values because banks discount houses and apartments to
achieve sales and clear their balance sheets. Banks in Spain
seized more than 200,000 residential properties, adding to about
1 million newly built homes for sale, Fitch said.

Spanish real estate values fell 25.5 percent from the 2008
peak, according to the country’s Ministry of Public Works.